Spending Review 2010: 'More cuts could be needed'

The £81billion of cuts announced by George Osborne, the Chancellor, might not
be severe enough to plug the hole in Britain's finances, according to the
Institute for Fiscal Studies, a leading think-tank.

Chancellor George Osborne confirmed that 490,000 public sector jobs were expected to be lost over the next four yearsPhoto: PA

Carl Emmerson, the IFS acting director, said the measures represented the deepest cuts since the 1970s, rather than the Second World War as previous Government plans had implied.

He said it was still "quite possible" that the Chancellor would have to make further spending cuts or put tax in order to meet his target for tackling the deficit.

"The deep cuts to spending announced in the spending review will reduce the quantity and quality of some public services," he said.

"Should this deterioration prove too great for the Government's liking then the Chancellor might wish to top up his spending plans."

He told Channel 4 News: "The benefit cuts we heard about today - an extra £7 billion - on average will impact those in the bottom half of the income distribution more than the top half of the income distribution. Therefore, they are regressive.

"And the public service cuts, it's hard to know who loses from that but the Treasury's best estimate ... again suggests that the bottom half will lose more than the top half."

Mr Osborne today denied the cuts would unfairly hit the poorest of society and said: "If you take all the measures together then the richest pay the most but everyone makes a contribution."

The Chancellor's measures were backed by the Fitch ratings agency, which said that they should help the UK retain its prized triple A credit rating.

In other key announcements, Mr Osborne said that he was bringing forward the date at which the state pension age would rise to 66 for both men and women, saving £5 billion a year.

He confirmed that 490,000 public sector jobs were expected to be lost over the next four years as most Whitehall departments were forced to cut their budgets by around a fifth in real terms.

The police, prisons, universities and local councils, will all be hit hard as the cuts bite.

But the centrepiece of his plan was a series of benefit cuts totalling more than £7 billion on top of the £11 billion already announced in the emergency Budget in June - representing a hefty increase on the £4 billion previously predicted.

Under the changes, the employment and support allowance - brought in to replace incapacity benefit - will be time-limited to a year for those claimants judged able to work in future.

Young people under 35 will only be able to claim housing benefit for a room in a shared house rather than their own flat, and the mobility allowance will be cut for care home residents.

The rules on the working tax credit will also be tightened so that couples with children will have to work at least 24 hours a week between them in order to claim it.

The changes suggest that Work and Pensions Secretary Iain Duncan Smith has had to pay a high price for his single "universal credit" - replacing all working age benefits - to be phased over two parliaments with £2 billion of Treasury funding.

Alan Johnson, the Shadow Chancellor, said that the Government's "rush" to cut the deficit was a "recipe for unemployment".

"Today's reckless gamble with people's livelihoods runs the risk of stifling the fragile recovery," he said.

"We believe we can and should sustain a more gradual reduction, securing growth."